PROFITABLE SMALL SAWMILL BUSINESSES

Harry WattWood Products Specialist

North Carolina State UniversityWERC Small Sawmill Workshop-2015

Thursday, June 11, 2015

North Carolina State University Wood Products Extension

Since 1958 has supported the wood products industry in North Carolina in the areas of wood education, training, troubleshooting problems, research and overall assistance in making a large variety of wood products.

It is the policy of the State of North Carolina to provide equality of opportunity in education and employment for all students and employees. Educational and employment decisions should be based on factors that are germane to academic abilities or job performance. Accordingly, the North Carolina State University (“NC State”) does not practice or condone unlawful discrimination in any form, as defined by this policy.

Website = http://outreach.cnr.ncsu.edu/ncwood

Wood Education and Resource Center• Is the focus of the US Forest Service effort of support of the

hardwood forest industry in the states east of the Great Plains• Located in Princeton, West Virginia, www.fs.fed.us/werc• Our WERC projects websites = www.cnr.ncsu.edu/woodworkshops

and www.cnr.ncsu.edu/usalocalwood

The work upon which this workshop is based was funded in whole or in part through a grant awarded by the Wood Education and Resource Center, Northeastern Area State and Private Forestry, U.S. Forest Service.In accordance with Federal law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, sex, age, or disability. To file a complaint of discrimination, write USDA Director, Office of Civil Rights, Room 326-W, Whitten Building, 1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider and employer.

Opportunities Exist Everywhere for Small Sawmill Businesses-Supply and Demand

• Supply = every neighborhood has trees that make logs• Landowners need to sell logs for $• Tree trimmers need a place to get rid of logs

• Demand = homeowners and businesses need lumber• Utility uses-barns, sheds, fences• Manufactured products-furniture, cabinets, millwork• Industrial products-crossties, pallets

• Should be able to sell every board sawn at a profit sawn by a small sawmill operation

Success Formula for Small Sawmills-Align

• Personal interests and talents

• Requirements for cash match reality

• Savvy log procurement

• Good equipment, layout and processing methods

• Good buildings, location, support network

• Get full value out of every log + sell every board + slabs + sawdust

Must Have a Plan Based on Good Strategy

• Align capabilities with customer needs

• Realize that a small sawmill operation is a local business

• Look at the profit margin of every log

• Must be able to market all grades

• Normally have to have multiple customers

• Normally have to saw multiple products

• Look at each log and optimize its value

Be a “Flow” Small Sawmill Operation

• “Saw With Purpose” = “Presale Production” – have a customer in advance of sawing!

• If selling green lumber, load directly while sawing

• Have a place to go with waste = slabs, sawdust, edgings

• Flow is important• Make sure everything is sold quickly• Make sure everything gets sold• Green lumber degrades quickly if not dried properly• Flow = getting paid quickly!

Strategy

• Equipment and capabilities

• Obtaining logs

• Sawing strategy for profit margins = sales value $ - cost of logs and sawing

• Customer needs-find buyers for every board sawn

Good flow of logs into this mill and board to the edger

Business Planning

• Work out on paper a successful plan that shows a profit• Plan outlines how the business will be profitable

• Equipment• Obtaining logs• Sawing strategy• Volumes and prices• Future expenditures for buildings, equipment, inventory• Customers• Timeline

Business Configuration

• Single owner operation

• Family business

• Hired hands

• Partnership

• Utilizing cooperative businesses-tree trimmers and developers for logs, hiring out kiln drying, long tern contracts for sales, etc.

• Focus on products or sawing service

Financing

• “Made $ elsewhere and now playing with a sawmill” = sideline hobby

• Part time business-low cost mill and work up

• Full time business-self finance or borrow, reinvest profits

• Sawing service by cash or swapping logs

Estimating Production Costs

• All logs saw out a range of lumber grades and $ values

• Sawn volumes normally are greater than log scale volumes

• Production costs include• Log costs• Equipment cost-varies with time period choices• Gas, oil, electricity• Maintenance and blades• Labor costs• Business costs-insurance, professional services, etc.• Other costs

Monthly Profit and Loss Statements

• Profit/loss = Revenues – expenses

• Convert to Sales Value of Production by accounting for changes in inventory

• P & L’s are important to help figure out what is the best business choices for species, grades, products, customers, etc.

Not a good idea towrap lumber outdoors

in plastic

Feedback and Analysis is Important

• Keep daily records of log purchases, logs sawn, lumber sawn, lumber sold, hours worked, sawmill hours, etc.

• Keep up with the market prices for logs and lumber

• Visit logging sites to see what logs are available

• Visit shops and factories that are using lumber

Questions and Comments